McCormick & Co. Inc. (MKC) is set to report fourth-quarter and full year 2014 results before the opening bell on Jan 28. Last quarter, this global leader in spices and flavors posted a positive surprise of 17.28%.
In fact, McCormick has delivered positive earnings surprises in the last four quarters, with an average surprise of 7.06%.
Let’s see how things are shaping up prior to the announcement.
Factors to Consider
Top-line growth, cost savings, and aggressive buybacks have been driving earnings of the company.
McCormick has witnessed a 20% rise in spice, herb and seasoning purchases in the last five years, owing to the rising demand for flavors. The company also regularly enhances its products through innovation in order to remain competitive and tap the rising demand for new flavors, spices and herbs, which are fast replacing demand for sugar, salt and fat.
McCormick’s increasing focus on saving costs and enhancing productivity through its ongoing initiative, the Comprehensive Continuous Improvement (‘CCI’) program, which started in 2009, is also encouraging. The company expects to report cost savings of at least $50 million for 2014 compared with the prior expectation of at least $45 million.
As announced in its third quarter conference call, McCormick expects adjusted earnings per share in the range of $3.30 to $3.37 in 2014 based on lower tax rate. This marks an increase of 5.4% to 7.7% from adjusted earnings per share of $3.13 in 2013. Also, the company expects sales increase of 3% to 5% in 2014, with rapid growth in the international markets.
However, weak demand from quick service restaurants, mainly in the Asia-Pacific region, remains a concern over the near term. In Asia, demand has been impacted by consumer concern about bird flu in China. Currency headwinds and higher input costs continue to remain overhangs.
Earnings Whispers?
Our proven model does not conclusively show that McCormick is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.
Zacks ESP: The ESP for McCormick is 0.00% as both the Zacks Consensus Estimate and Most Accurate Estimate stand at $1.14 per share.
Zacks Rank: McCormick’s Zacks Rank #3 (Hold) when combined with a 0.00% ESP makes surprise prediction difficult.
We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Stocks to Consider
Other stocks in the consumer staples sector that have both a positive earnings ESP and a favorable Zacks Rank are:
Supervalu Inc. (SVU), with an Earnings ESP of +4.76% and a Zacks Rank #1 (Strong Buy).
Sysco Corp. (SYY), with an Earnings ESP of +2.44% and a Zacks Rank #2 (Buy).
Reynolds American Inc. (RAI), with an Earnings ESP of +1.15% and a Zacks Rank #2.
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